BoP surplus swells | The Daily Star
12:00 AM, August 21, 2016 / LAST MODIFIED: 12:27 AM, August 21, 2016

BoP surplus swells

The balance of payments surplus swelled by more than 15 percent last fiscal year to $5.04 billion thanks to lower import growth than export and an increase in foreign aid.

However, Bangladesh Bank projects the surplus will be eroded by half this fiscal year, as the investment scenario is expected to pick up.

In fiscal 2015-16, exports grew 8.94 percent and imports 5.45 percent, which caused the expansion of the overall surplus, according to data from the central bank.

During the period, the trade deficit stood at $6.27 billion in contrast to $6.96 billion in fiscal 2014-15.

The reason for the slow import growth is the lack of investment appetite.

Last fiscal year, capital machinery imports increased 14.10 percent in contrast to 22.97 percent recorded a year earlier, according to letters of credit settlement statistics.

Not only industry-related items, the import of other goods like food and petroleum also declined.

Food grain imports in the last fiscal year plummeted 25.45 percent and petroleum 29.48 percent. However, industrial raw material imports during the same period rose 3.21 percent -- which was 3.10 percent a year earlier -- in keeping with the slight increase in private sector credit growth.

Last fiscal year, the private sector credit growth rose by more than 3 percentage points over the previous year.

The increase in foreign aid and as the favourable trade credit contributed to the rise in overall surplus.

Last fiscal year, medium and long-term loans   increased 17.48 percent to $2.9 billion, according to BB statistics. Besides, the net trade credit in the last fiscal year stood at $2.1 billion in the negative, down from $2.5 billion in the negative a year earlier.

The officials said the customers made less deferred payment against imports, as a result of which the negative trade credit dropped last fiscal year. Another reason for the increase in surplus is that the net foreign direct investment soared.

In fiscal 2015-16, foreign direct investment reached $2 billion, which was $1.83 billion a year earlier. As the overall balance increased, so did the foreign currency reserves.

On August 17, the foreign currency reserves stood at $30.6 billion, which was equal to import bill for about nine months.

For an economy, reserves equivalent to 5-6 months' import bills are adequate.

The BB in its latest monetary policy statement said: “The import coverage of nine months by foreign reserves in fiscal 2016-17 leaves us much ahead of many developing economies in this respect.”

The erosion of balance of payments surplus during the course of the current fiscal year will not put any pressure on the reserves; rather, it would increase to $33.04 billion.

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